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Post Modern Economic Globalization -The implications for small states

Sunday, 23 February 2003 00:00

In a recent study undertaken by Dr. Mariama Williams she pointed out that in recent history there have been three broad phases of globalization.

- (A)Pre- Modern Globalization Colonialism and Imperialism: Which is the period of conquest that saw the colonization of vast areas across the world by European military and economic powers. The period of industrialization and growth of international capitalism built on the racial and economic rationalizations of slavery and subjugation.

- (B)Modern Globalization Neo -Colonialism and Economic Consolidation: Which is the period of the consolidation and corporate expansionism following the depression of the 1930s and which led to the “reassessment of international trade” and the emergence of the Bretton Woods system of global economic and financial management through the establishment of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (World Bank) and the General Agreement on Tariffs and Trade (GATT).

- (C) Post Modern Globalization Neo -Liberalist Expansion: The era that we are now living in which is considered the most comprehensive and expansive period of economic globalization characterized by the internationalization of production (global restructuring); rapid technological change in information; micro, bio and telecommunications; trade liberalization accompanied by attempts to remove all restrictions on foreign direct investment; the rise and extreme mobility of financial capital as a global player and its impact on national economies; the increasing power and influence of transnational corporations; restructuring (downsizing) of the state; the formation of regional trade and economic blocs across many countries; and the creation of international extra -juridical rules based systems (WTO) to enforce the orderly and accelerated expansion of trade.

So that it is clear that the process of globalization has been ongoing for quite a long period of time. What many have been missing are the connecting points that gave a holistic explanation of the painting. For Caribbean NGOs while all phases are important we are especially intrigued by the second and third phases of globalization, which set the stage for the current epoch.

Following the 1930s economic depression, the industrial economies of the world, formed the WB and the IMF. These two global institutions were mandated to begin the process of neo-liberal economic restructuring.

In the case of the IMF, it has gradually transformed from an institution protecting global financial liquidity to one predominantly concerned with the protecting international creditors from bad investment decisions as characterized by the number of third world debt defaulters. This was to be achieved through the creation of so-called economic stabilization packages geared towards restoring balance of payments equilibrium on current and external accounts.

On the other hand by the late 1960s the World Bank has transformed itself into the principal global institution concerned with orderly economic transition of Third World economies into newly emerging international economic Order. This was to be achieved through what we all know as “Structural Adjustment and Economic Reform”.

By the 1870s the so- called “Washington Consensus” was to emerge as the leading theory in modern economic thought. The consensus represented an unofficial pact between the IMF and the World Bank to begin to push for economic and financial internationalism based on a neo-liberal paradigm of economic organization that promoted the predominance of the market.

- Radical reduction in government spending ostensibly to control inflation and reduce demand for foreign capital flows, a measure that translated in practice to cutting spending of health, education and welfare programs;

- Liberalizing imports and removing restrictions on foreign investment, supposedly to make; local industry more efficient by exposing them to international competition;

- Privatization of state enterprises and embarking on radical deregulation in order to reduce the role of the state in shaping economic policy while relying on the private sector to promote economic growth;

- Devaluation of national currencies to make exports more competitive thus allowing them to earn more foreign exchange; and

So that, while the expressed basis for the promotion of structural adjustment and economic stabilization was to allow third world countries to meet their external financial commitments, the underlying motivation was to initiate full scale economic liberalization of the Third World economies, turning them into caricatures of Western European and North American economies

Of course by this time Western style liberal representative democracy had spread throughout the former Eastern bloc of socialist countries, parts of Asia, and definitely in Latin America. The political and economic stage of globalization was set, the major actors were in place and play was well into its third scene.

The third scene is the postmodern era of Globalization. It is therefore absolutely important that we recognize the infinite and unmistakable connection between the second and third phases of globalization

Structural adjustment and economic stabilization were not accidents of history they were careful planned programs to weaken and subjugate developing economies. The modus operandi of which was to lay the conditions for the uninhibited expansion of trade in goods and services from the North to the South while ensuring safe and credible environments for capital investments and speculation.

Once the Caribbean and other regions bought into the logic of phase two, we sold our economies and societies to the controllers of phase three in the globalization in the globalization process.

I can remember well in 1991 when the then Sandi ford government of Barbados was negotiating the Barbados adjustment program, that the IMF was insisting that the government had to remove concessions to its weak manufacturing sector. The government eager to conclude the negotiations bought into the neo- liberal argument that in order to make the sector competitive and more export oriented that it was necessary to remove “barriers to export activity”.

The arguments sounded quite logical. Once local manufacturers remained hemmed into the local market, they will never be able to transform their productive processes to face global competition. The country would create a cadre of regressive capitalist introverts, who would contribute nothing to the earning of foreign exchange to build the nations international reserves.

Of course the manufactures thought the removal of concessions on production in order to force them into export manufacturing was total madness. Their argument then, as it is now, was that it would devastate them and ruin the industry - a clash of ideologies- protectionism vs. liberalism

But really the stakes were beyond the contemplation of both the government and the manufactures. It was not so much about building competitiveness as it was about creating the necessary conditions for the unimpeded entry of low cost cheap manufactured goods from industrialized countries.

In other words IMF/ World Bank structural adjustment was laying the groundwork for the coming of the “economic messiah” the World Trade Organization.

So that by 1994 at the end of the Uruguay Round of trade negotiations the conditions were set for developed countries to push the final agenda of economic globalization. That agenda consisted predominantly of the removal of all barriers to trade in goods and services, the free movement of capital and the enhancement, expansion and protection of foreign investment.

Key policy makers of the United States, Canada, Japan and the European Union -the so- called Quads had long formed the opinion that in order for their economies to continue to grow and expand they needed to have greater access to more economies for their expanding industrial bases.

They concluded that the then existing GATT was failing to provide a strong enough impetus for trade liberalization and by extension globalization and that major changes would be necessary to accelerate free trade.

To be sure, just prior to the formal conclusion of the Uruguay Round and the establishment of the WTO, C. Fred Bergsten the US point man on trade in testimony before a skeptical US Senate Trade Committee argued that “a strong WTO... will now serve US interests... we can now use the full weight of international machinery to go after trade barriers, reduce them and get them eliminated.”

The agenda was therefore clear as to the intent of the developed economies. For this reason during the actual negotiations to establish the WTO the “Quads” in particular led a vicious assault on the fundamental principles of fair trade that were covered in the previous “ineffective” GATT.

They fought to remove the flexibility in the GATT dispute settlement system particularly its emphasis on recognizing “special and differential status” of developing countries. They fought the prevalent ideas of using trade policy for development purposes citing it as a failure in need of change.

They fought for the creation of the Trade Related Investment Measures (TRIMS) clause and the Trade Related Intellectual Property Rights (TRIPS) clause. The first (TRIMS) to be used as a tool to eliminate barriers to the system of internal cross border trade of product components of transnational corporations subsidiaries that had been imposed by many developing countries in order to develop their domestic industries. The second (TRIPS), was designed to consolidate US and European advantage in cutting edge knowledge -intensive industries and by extension destroy the efforts at industrialization in developing countries (the so-called technological diffusion argument).

Finally, they pushed for the total removal of all barriers to the free movement of goods and services between countries by the establishment of a powerful Dispute Settlement Mechanism. We have seen directly the potential power of this Panel with its recent decision on the removal of the preferences for the entry of ACP Bananas into European Unions markets.

More recently in 1998, there was a sinister effort to implement a Multi-lateral Agreement on Investment (MAI), to offer unprecedented protection to foreign goods from developed countries; this measure failed in large part due to massive opposition from civil society across developed and developing countries alike. So that while these and other measures in the creation of the WTO, the dice were cast for full-scale economic liberalization with more benefits for the developed economies in the South.

What does all of this mean for small states such as those in the Caribbean? Can postmodern economic globalization really help developing countries to grow and expand? What impact will economic liberalization have on our small open economies? Who stands to benefit more from the freer trade, and more investment? Can we resist the WTO, World Bank and the IMF?

Firstly we must get a few things straight. Developing countries had little choice in whether to participate in a new global economy. Many times we hear people saying that we should not have joined the WTO and we should not liberalize our economies. We in the NGO community do not support that view. We believe that trade liberalization can be beneficial to developed and developing countries alike.

There is no question that more trade is better than less. And with less grant aid coming from developed countries we need to ensure that we produce and sell even more than we did in the past if we are to meet our developmental needs. What we question however is the kind of economic liberalization that we are being made to undertake.

Frankly put, the WTO version of trade liberalization is anathema to the interests of small states. In trying to posit that all states are capable of participating on the same economic field, the WTO has effectively destroyed the concept of fair trade. By refusing to recognize the asymmetrical difference between developed and developing countries the WTO has gone a long way in shaping a world economy of buyers and sellers. Unfortunately we are only supposed to be buyers.

Perhaps the former United States Secretary of Agriculture John Block’s words were prophetic when at the beginning of the negotiations to establish the WTO he said “the idea that developing countries should feed themselves is an anachronism from a by a gone era. They could better ensure their food security by relying on US agricultural products which are available in most cases at much lower costs than theirs.”

So it is clear to see what the intent behind economic liberalization is and to believe that this is not just limited to agriculture but extends to every sector of the economy.

By diluting the principle of “special and differential treatment” in the WTO arrangements developed countries ensured that developing countries in the Caribbean would never be bale to use size or status of development to gain preferential treatment or break into the international economies.

It is for this reason that Caribbean drink manufactures and poultry producers are facing certain extinction. As net importers of goods and services needed as inputs in the productive process, Caribbean producers will hardly ever be able to become competitive producers of anything.

The input costs alone will see to that. And the reality is that if we cannot even compete in our own markets against foreign imports how will we able to compete in foreign markets against the same goods.

Developing countries have been effectively muted in the process. The implications are enormous job losses; economic down turn, cut backs is social spending, loss of pride and industry and resulting higher levels of poverty.

Again when the WTO passed its edit on TRIPS at the insistence of the USA, it was effectively destroying any hope of developing countries becoming industrialized. Everyone knows that technology is great, but that it is also very expensive to obtain. It is largely the preserve of the industrialized economies. To get it you must buy and buy it at horrendous prices.

By restricting the ownership and use of intellectual property the TRIPS ensures that developing countries will never be able to get their hands on appropriate technologies to advance in industry or that we will die trying to do so because of the outrageous costs associated. There will be no mass subsidized transfer of technology from rich to poor.

On the other hand, TRIMS effectively seeks to ensure that developing countries lose their ability to provide real protection to domestic producers and manufactures against cross border trade in products by transnational corporations. There will be no indigenous product development in these countries.

Then we are hemmed in by the dictates of extra territorial semi-juridical body called a Disputes Panel whose aim it is to keep us in check and ensure that we adhere to the rules that mitigate against our best interest.

Effectively therefore developing countries have lost their ability to use trade policy as a tool for national industrial development. Fledging industries are being forced to prepare for full competition now.

This can and will only have debilitating impact on these local industries leading to loss of revenues and eventually as we are seeing a loss of jobs. Added to this governments will, by virtue of the fact that they have to lower import taxes on goods and services, lose large portions of revenue and hence be restricted in the kinds of developmental policies they can pursue.

All of these consequences and more means that our economies and societies will have to make very serious adjustments in the types of activities we participate in and the level of domestic investment we are prepared to put into them.

Beyond this however, we will have to seriously consider our role and place in the international trading system, especially in the WTO. In its present form it will never be able to deliver to us the benefits which many seem to think it can. It was not constructed to help people in the developing world instead it was created to represents the interests of industrialized countries

It is undemocratic, non participatory, inequitable and predatory in nature and for this reason Caribbean NGOS believe that is has to undergo fundamental change before any new round of trade negotiations can be concluded.

We have called for a complete reform of the WTO system of decision making to reflect a more pluralistic system based on one country one vote.

We are calling for special & differential treatment clauses to be strengthened and expanded to protect the interest of small developing states and the highly indebted poorer countries. We call this the principle of unequal treatment for unequal partners

We are calling for separate dispensation for the critical sector of agriculture, beginning with the full implementation of the Agreement on Agriculture and including special protection for domestic production in small developing countries

We are also calling for the removal of government procurement regulations in small developing countries from the list of areas slated for further liberalization. And we are asking that the appropriate mechanisms be put in place to ensure that adequate financial and technical resources be made available for all developing countries to improve their institutional capacity to manage the transition to a fully liberalized economy. In other words, we are not only asking for free trade we are asking for fair trade

We must act together and act now. Failure to do so will mean failure in the end.